Nicholas Stuart is a columnist with the Canberra Times.
Nick Stuart has written three books,
Kevin Rudd: An Unauthorised Political Biography;
What Goes Up: Behind the 2007 Election; and
Rudd's Way: November 2007 - June 2010.

Saturday, August 17, 2013

WEEK TWO

For campaigning politicians, getting the economic 'story' right is vital.

You can see this by the way Tony Abbott's using the 'debt' word whenever he gets the chance.

Kevin Rudd's got an economic story too, but this week it began to look like a bit of a tall tale, as this article for the Canberra times suggests . . .

Economics, Fact & Fiction

Perhaps it was the heat. Or maybe
the humidity. Nevertheless, and for whatever reason, this was the week Labor
began to ‘go troppo’. Kevin Rudd’s febrile promise to establish Darwin as a tax
haven came from somewhere right off the radar. The campaign promise utterly
failed to intersect with reality.

For a start, it’s highly dubious
that this measure would ever pass the High Court. But more importantly the
promise wouldn’t even take effect until 2018 – two elections away. Don’t worry,
you won’t be hearing any more about this rubbish. It’s been floated in a
desperate attempt to generate momentum as Rudd rushes around the country. But
the old magic just isn’t working any more. Things fall apart.

That’s why Tony Abbott won’t be
releasing his costings. The pressure is off. He simply needs to avoid unforced
errors. Don’t believe anyone who says this will be another hung parliament –
they’re talking rubbish. Corporate advisor Pottinger did an analysis of the
betting markets. Rudd has only a 16.5 percent chance of leading Labor to
victory. We still have another three weeks of colour and movement, but I
believe the result is locked-in.

Did you notice my slight hesitation?
I’m actually certain the Liberals will win, but prepared to admit there remains
a very small, outside chance that things will turn around. The future is
another country and predictions are always risky. Not that this worries
Treasury, however. Despite absolute and recurrent proof of its inability to
accurately hit numbers, the department continues to pretend it has some sort of
reputation for accuracy.

In a way it does. You can
absolutely guarantee the projected figures will be wrong. Things happen. Nobody
can be right four years out – so why not admit that. Admit, “this is a guess”
and you don’t look so ridiculous. Nobody is more aware the documents are prone
to error than the economists themselves. Indeed, earlier this year the
department produced a wonderful 66-page paper (with five detailed appendices)
admitting its “experienced mixed success,” forecasting over the past decade. By
this Treasury means the projections were actually dramatically and disastrously
wrong in four of the past five years. In fact, they were rubbish, if better
than those of the US and some other countries.

Treasury emphasises, “the economic environment has become more
volatile recently and profound structural changes are occurring . . . making
the forecasting task more difficult”.

Yet hope – or credulity – springs
eternal. This week the department again released a Pre-election Economic and
Fiscal Outlook, demonstrating the new forecast budget outcome over the next
four years will be $209 million better than its previous estimate, released a
few days previously. Instead of asking why the guess has changed, or why this
one might happen to be more accurate than the last one, everyone simply stood
around nodding sagely.

The truth is the projections are
rubbish. This is a simple fact. Any real economist would readily admit as much.
If you do, however, choose to believe Treasury then I’ve got a bridge across
Lake Burleigh Griffin I’d like to sell you. In fact, I’ve got two.

If you want a demonstration of
what nonsense the Outlook is, consider the fact that it dismisses the possibility
that different policies will provide different results. Are the economists
really suggesting, that no matter which party happens to win power and whatever
policy settings it might choose to implement, these will have no demonstrable
effect whatsoever on the forecast outcome? It’s ludicrous. We may as well not
bother voting.

Examine the detail of the
predictions and their idiocy becomes apparent. Will we have a carbon tax or
not? If so, at what price? The official guess is $38 a tonne in 2019. Why not
$48? Why not $12? Insert whichever figure you want. All of these outcomes are
equally plausible; equally justifiable.

This alone makes the projections
risible. But wait, there’s more! Our exposure to what’s happening overseas
means decisions made in Beijing will inevitably have dramatic effects
determining exactly what happens to our economy. How much genuine comprehension
of the Chinese economy (and, perhaps more relevantly, decisions made within the
politburo) does Treasury really possess? Maybe the department might like to run
an ANU short-course to let the Beijing watchers know what’s really going on
inside Zhongnanhai. Sorry, that’s the leadership compound in Beijing but, as a
devoted reader of Treasury documents you already knew that . . .

During an election period the
Treasury should confine itself to playing guessing games about the past. This
entire forward projection exercise was simply invented by Peter Costello as a
method of clubbing Labor oppositions round the head. It’s to the department’s lasting
shame that it pretends it is engaged in anything other than a simple political
tactic designed to entrench whichever party happens to be in government.

There’s a simple way out. Admit
the probability of forecasting error. Define the confidence levels and offer
alternate scenarios. Hopefully the next Treasurer might get the department to
work for its money. Until then, try and find something useful for the document.
Colouring paper.